But you might be wondering, why on earth would companies care what people say about them? Especially when so many of the left’s luminaries insist that companies, especially multinational companies in headlong pursuit of profits, are essentially an irresponsible law unto themselves?The answer is as simple as the nose on your face, really. It’s because a seller’s reputation is the key to their long-term profits.

The consumer is king, and she is a hard task-master—and it is the very profit system that those leftist luminaries denounce that is the key to ensuring a company’s responsibility. Because if long-term profits are important to a company, then keeping their customers happy must be paramount.

Some people see profits as providing bad incentives to corporations. Like PC, I believe they provide good incentives.

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I guess this means it’s impossible for BP to have blown up one of their wells and caused an environmental catastrophe or for milk companies in China to sell poison to babies or for Toyota to sell cars that burst into flame.

My point being that the sort of people who become company executives and directors are not the sharpest knives in the draw, particularly when it comes to assessing risk to their companies reputation.

[DPF: Oh you want a perfect free market. Sorry that only exists in nevernever land]

You are right, of course. People make mistakes, whether they are in business or in government. If you are running a business and you make a mistake, then you get punished by the consumer, and you better change tack quickly. Hence Cadbury very quickly took palm oil out of their products. However if you make a mistake when running a Government, at the very least there is someone else to blame – and as long as you keep talking loud enough and long enough you’ll probably get reelected. And if you get turfed out by the electorate, there’s always a high list spot to get you back in.

It always amazes me that when there is a so-called market failure (ie someone made a mistake) that people think governments should fix the mistake – as though governments are run by perfect people who never err. Markets will self correct – if not interfered with by politicians. Politicians think good intentions are enough, and they don’t need to take any notice of the real world.

I imagine PC would be against regulating predatory monopolies, who can generally avoid being prey to such issues.

And some other business models don’t have any interest in the ‘long term’ or have faith in their ability to control their reputation sufficiently without actually having to behave well.

Profits are ethically neutral. Profiting from doing bad things is wrong, but that’s because of the bad things you’re doing. (I suppose arguably it’s a little more wrong, because the money is incentive to do whatever it is more).

How are these benefits recognised by the consumer? Do they materialise, unassisted in the nexus of thought? Or do companies spend a lot of money (there’s even a whole industry dedicated to this) trying to convince people of the value of the purchase and influence the long term direction of production.

If there is a potential return in a what could be considered a luxury item, with little or no actual benefit, consumers must be convinced of that luxury.

Profits are made by supplying what people either need (e.g. food, bog rolls, housing) or want (mp3 players, playstations, home theatre). In the latter case, convincing people what they want, to the benefit of those producers, is decided by _successful_ corporations…

Pity Mr. Cresswell couldn’t apply a bit of the capitalist ideology and brand preservation he preaches to the Libertarian Party. The doctrinal attitude displayed by he and other leaders has reduced a party that was once a significant political force in NZ to a fringe group of weird Scientology type cultists with Ayn Rand substituted for L Ron Hubbard.

If they keep going the way they are, they’ll be able to look back on the Mt Albert election (what, 30 votes was it?) as an event of outstanding success.

Companies don’t just impact on their customers and their shareholders – they impact on society and the environment. This is why regulation is needed as well as profits. The state needs to intervene for the good of all.

Dim, it doesn’t mean that BP couldn’t have made a mistake. It means they’re going to pay very significantly for that mistake, and every other company in the oil industry is going to change their risk analysis. I’d suspect that BP is not only going to have to pay for the cleanup, but also that their sales in the US will be through the floor. When other oil companies factor in the cost benefit of properly installing blow out preventers, they’ll probably be saying to themselves
– money saved = $5 million per well
– likelihood of things going wrong = 3%
– cost of things going wrong = $50 billion once we factor in cleanup and lost sales
– cost of risk = 3% x $50 billion = $150 million
I guess we’d better put in a proper blow out preventer then.

The market is working exactly as it should. The fact that things go wrong and there is a public relations extravaganza doesn’t indicate market failure. It indicates the market doing exactly what it should.

There is no process that can control human decision making such that no mistakes are ever made. Attempting to find one would, I believe, always lead to central control. And we’ve previously proven that, not only does that not work, but that when it doesn’t work the consequences are far worse than the consequences when private organisations do bad things. When the govt does bad things, the history is that they cover it up, deny it, blame others, or just ignore the problem. Companies attempt to do these things, but I would argue with much less success.

To give examples, consider the problems the Aus Airforce has had with admitting that the maintenance workers on the F-111 fuel tanks were dying, the problems with Transpower in NZ admitting the Auckland grid is fragile, the problems with corruption in state govt in Australia.

Be nice if some political parties were to worry about their reputation.
Imagine the kind of Ruby Union we would have if they had bothered as well. Not a world cup to be seen anywhere befroe or after. Hmm something about red blooded men maybe.

Is that why unions fail. poor reputation.
Lots of possiblities all round.

Companies don’t just impact on their customers and their shareholders – they impact on society and the environment. This is why regulation is needed as well as profits. The state needs to intervene for the good of all.

The 2 most important factors leading to postiive environmental outcomes are wealth and private property rights. Have a look around at the environmental record of eastern europe throughout the cold war.

Consumers can intervene much better than the state can in a capitalist democracy. You could get all your friends to stop buying Toyota and it would disappear tomorrow (like the US car makers who include union dues in the price of their vehicles).

Most (if not all) consumer decisions are based on perception – not on reality. Consumers perceived wants are driven by marketing and social pressure, and are rarely based on actual need.

Cadbury’s fall from grace was a marketing and PR failure. There are plenty of reputable companies who could equally come unstuck because of their manufacturing practices …. but most consumers remain blissfully unaware.

Brands are fragile: subject to the whims of public perception and the agendas of media (both social and mainstream). If you want to know how fragile – just ask Robin Brooke.

Of course companies like Cadbury act to protect their profits by responding to public opinion. That’s all good.

On the other hand, it’s the dirty state that regulates and requires disclosure of product ingredients. Or, in the case of, say, Telecom, acts to curb market abuse. Telecom’s practices didn’t change because it wanted to protect its profits, or because it responded to public opinion. It got hit with the hammer of state.

Pity Mr. Cresswell couldn’t apply a bit of the capitalist ideology and brand preservation he preaches to the Libertarian Party. The doctrinal attitude displayed by he and other leaders has reduced a party that was once a significant political force in NZ to a fringe group of weird Scientology type cultists with Ayn Rand substituted for L Ron Hubbard.

Good grief. We agree again.

Believe it or not, I regard Libertarian thought as important. It’s a shame that it gets subsumed within a daft personality cult.

On the other hand, it’s the dirty state that regulates and requires disclosure of product ingredients

There are virtually no conservatives that advocate no government at all. But the few things that the government is useful for do not justify it doing everything else. If food labeling is considered a good thing, it does not mean the government can run the railways.

Also 3rd parties can also do many of these things. I would suggest that our current food labeling practices have as many holes as swiss cheese and are usually poorly understood. A private quality brand could possibly do a better job.

Companies don’t just impact on their customers and their shareholders – they impact on society and the environment.

Then as Consumers we have the ability to boycott that company which will reduce its profits, therefore reduce the dividend to shareholders, which will force the company to change – shareholders wont be too happy with the CEO if the company starts driving away paying customers.

This is why regulation is needed as well as profits. The state needs to intervene for the good of all.

I think this is the first ever post on Kiwiblog that actually warrants the reply “Fuck off back to North Korea, you fucken commie!”

“I think this is the first ever post on Kiwiblog that actually warrants the reply “Fuck off back to North Korea, you fucken commie!””

Its not the first. The scum has posted numerous messages displaying similar sentiment. (changing the American Constitution and restricting the right to own firearms for a couple of examples) The real crazy part is she thinks she’s a right winger, and has boasted of writing for numerous “right wing blogs”.

Its not often someone as odious and offensive and extreme left as this comes along, but for sure, she’s not alone here.

(BTW, she’s not a “she”. I only call her that due to recent exchange where I identified her mindset as that of a rabid socialist feminist.)

DPF – “Some people see profits as providing bad incentives to corporations. Like PC, I believe they provide good incentives.”

Bloody lucky they bailed out the financial markets in the US then ay! Those wonderful corporates from Wall Street do such sterling work! Indeed, they make some of the best profits in the world, just remind me what it is they do again?

Kaya: exactly. I think you’ll find quite a lot of people on the right who think those bail outs were a bad idea. The people getting bailed out were basically the shareholders, most of them shareholders who had taken a lot of risk, and failed to pay attention to the management of the organisations they owned. They deserved to lose their money, which would have given them all an incentive to be more careful next time. The Obama administration thought otherwise. Not sure that invalidates the concept of private companies making money. I’d say it’s more likely it invalidates the concept that left wing governments should be elected.

“I guess this means it’s impossible for BP to have blown up one of their wells and caused an environmental catastrophe or for milk companies in China to sell poison to babies or for Toyota to sell cars that burst into flame.”

PaulL – The bailouts were instigated by Bush, though his were relatively minor at only $700 billion!
I don’t really care who instigated the bailouts, and I actually don’t think it matters who is in power in the US (or NZ it seems), same shit, only the talking head changes. Doesn’t matter which party either.

“Obama’s victory and Geithner’s appointment are the completion of Goldman’s meticulously crafted plan to become a superpower. The firm now has the clout to impose its will on the financial markets, and the world.”
GOP or Dems? Conservatives or liberals? It doesn’t matter. We’ll all controlled by “The [Goldman] Conspiracy.” So why not surrender, let them have the power? The truth is, through their lobbyists and surrogates in Washington, they already rule America.

I just find it ironic that Wall Street, the poster boy for the free market gets to spin the “too big to fail” line. What complete and utter bullshit. Isn’t the whole free market principal that the bad fail and the market gets rid of the dead wood? Someone better and stronger takes over.? Whoops! Not when you work for Wall Street and all your buddies run the Federal Reserve and hold the key treasury posts ay?!
Apart from the shareholders getting bailed out we get to watch the same shit going on all over again with billions of dollars getting paid out in bonuses.

I repeat my question from earlier, “what exactly is it they do again?”

Thank you for your kind words Russell Fletcher. The leaky building crisis which has and will continue to cost billions of dollars was a direct result of deregulation. The free market acts for the benefit of the shareholder and must be controlled by the state.

Kaya: The free market principle (note spelling) is exactly that the bad fail. The trick is the definition of bad. Bad means “lose shareholder money.” If you can convince the government to give you money, then you clearly aren’t bad. The problem isn’t capitalism, it is government. The government should never have given that money over.

American Gardener: the leaking building “crisis” was caused by three factors:
– change to the building regulations allowing for a wider range of construction techniques, and in particular less usage of toxic treated timber
– poor follow through by local councils (our most incompetent level of government) that resulted in a key part of that change being poorly implemented – the bit where buildings were actually inspected to make sure they were constructed properly
– penny pinching by housing buyers, where people bought houses with no eaves, because that gave them 3% savings on the roofing costs. That is to say, buyers putting quantity over quality, and then expecting to be bailed out by the govt.

Deregulation isn’t the cause. Deregulation, coupled with buyers who took risks, coupled with incompetent regulation by the local councils.

The problems you guys seem to be complaining about relate to human nature, not to the market. Although, I will say that the market is largely a reflection of human nature, so I guess the two are closely related.

To some extent, many on the left here are arguing a straw man. I didn’t see anybody suggest we needed an untrammeled market. But I would argue that about as many problems are currently being created by poor regulation as by market failure. So I would therefore argue that more regulation isn’t the answer, we’re probably about in the sweet spot at the moment. I’d also note that the need to bail banks out was largely created by poor govt regulation – both the Bush and Clinton govts encouraged home loans to people who couldn’t pay for them, and many state governments created laws that removed all risk from the home buyer.

The leaky building crisis which has and will continue to cost billions of dollars was a direct result of deregulation

Considering that this post pivots off Peter Cresswell it’s appropriate to put the following links in to a three-part post he did on the whole leaky building saga. Suffice to say that the reasons are not as simple minded as the Queen of Common Wisdom American Gardner paints them.

Given how often the deregulation myth is thrown in about leaky buildings, I should probably just bookmark these the next time some idiot puts that claim up. Enjoy reading the view of an architect:

I think you are presuming I am anti capitalism, not so. The principle is lovely, mind you so was the communist principle. Everybody chipping in for the good of the group blah blah. They both sound great.
I agree totally there should never have been any bailout (more to come) and if allowed to run the course the world would be out of the shit much more quickly than is going to be the case. We are in for years of this. Interesting you conclude it is the government’s fault? As I said above, most of the treasury positions are held by ex Goldman people.
Principles are great but the reality is never the same.

One problem seems to be that governments are afraid to stimulate their ecconomies and are succuming to the failed right wing concept of balancing the books in times of depression … so the ressession has and will continue much longer than it needs to.
It failed in the States in the 1930’s and in Japan recently and history is repeating itself in the States currently, with NZ not far off too.

jcuknz: there is a lot of analysis that suggests that the problem in the 1930s was the stimulus crowding out the private sector, not that the govt attempted to balance the budget (they didn’t really). Not saying that one position or the other is right, just saying that presenting your statement as a fact is not a fair reading of the analysis.

There is always a lot of analysis so you have to trust the gurus that make sense to your own beliefs. In anycase what happened in the early ’30s worked and it was the restraining right wing folly of Rosevelts second term that continued the depression until the industrial demands of WWII rescued the American ecconomy. From around 1935 unfortunately the ‘balance the budget’ “experts” gained predominence and held the States in depression. This is what is going to happen now and suprisingly America seems to appreciate the folly of those days echoed in what the G20 are going to impose on us all with their ‘balance the budget’ pre-occupation.

Further to my reply I suggst you read this link http://www.nytimes.com/2010/07/02/opinion/02krugman.html?th&emc=th
It seems a shame and tragedy that congress and senate refuse money to the states that keeps the unemployed from staving while they gorge on their state salaries in Washington. Another aspect of the situation is the lack of required skills needed by industries trying to recover not found amongst the unemployed.